RIL’s credit-default swaps rise after gas sale curb order

Mumbai: The perceived risk for holding debt of Reliance Industries Ltd (RIL) rose to a two-month high after the Bombay high court barred the company from expanding its customer base to reap higher prices for gas.

Mumbai-based RIL, controlled by billionaire Mukesh Ambani, in December 2005 had entered into exclusive agreements with state-run NTPC Ltd and Reliance Natural Resources Ltd, owned by his younger brother Anil Ambani, to sell gas to the two companies at a pre-determined price.

RIL, the nation’s biggest non-state-run refiner, now wants higher prices and more customers for the gas it’s drilling at the Krishna Godavari basin, off India’s East Coast. Reliance Natural Resources initially filed a suit in November for RIL to honour the contract for the gas supply. It sought the court’s direction afresh after RIL invited outside bids for selling gas.

Credit-default swaps based on $10 million (Rs41 crore) of RIL’s debt rose 1.9% to $55,000 as of 1:46pm in Mumbai, from $51,000 on 22 June, according to data compiled by Bloomberg. An increase in the price indicates deterioration in investors’ perceptions of the company’s ability to repay its debts.

The contracts last reached that high on 24 April after declining from a peak on 19 March. Dow Chemical Co., the largest US chemical maker, and RIL may announce a joint venture, the Economic Times had reported on 15 March.

RIL agreed to sell 28 million cubic metres of gas a day to Reliance Natural Resources, the Business Standard had reported on 5 February 2006. The gas was to be sold at $2.34 per million British thermal units (BTU), the PTI had reported on 26 July 2006.

Gas produced by non-state-run companies is sold in India at $4.75 per million BTU, R.S. Sharma, chairman of Oil & Natural Gas Corp. Ltd, the nation’s largest explorer, had said on 7 July 2006.

Reliance Natural Resources negotiates fuel supply contracts for group company Reliance Energy Ltd, Mumbai’s main electricity supplier to retail customers. Both are run by Anil Ambani, who acquired the family’s power, cellphone and financial services businesses after splitting from his brother.